Determining Residential Status And Sources Of Income For Jack And Tax Consequences For Eliza

Jack’s residential status determination

1. The current case study is based on the determination of residential status of Jack. As stated by the Australian Taxation Law to understand the tax situation of an individual one is required to primarily work out if they are an occupant of Australia or foreign resident. The act lay down by stating that an individual can be considered as an Australian resident for the purpose of tax without being an occupant of Australia permanently (Barkoczy 2016). An individual might have the visa to enter in Australia however; they may not be regarded as an occupant of Australia for taxation purpose. The study depicts that Jack holding the German passport decided to visit Australia in 2007 until the end of 2016 given that the passport permitted him to work in Australia for time he stayed there. A residential test according to the ordinary concept is performed to assess the residential status of Jack in the following ways;

1. The domicile act 1982 states that an individual is considered to be Australian occupant if their domicile is located in Australia (Taylor and Richardson 2013). As determined under the domicile test, Jack held the German passport and resided in Australia for the period of 2007 until the end of 2016 during the income year.
2. Jack resided for the period of 2007 until the end of 2016 and was employed to Malaysian based company and worked as marine engineer on a sea going barge.
3. Jack visited Australia by working and living in less than one location and he will be regarded as the foreign resident for taxation purpose.

From the above test, it can be determined that Jack did not retain the domicile of his origin and acquired the domicile of his choice in another country (Sadiq et al. 2013). As stated under “Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307” the domicile of a person should have in order to obtain domicile of his choice in a country is the intention to make his home. Therefore, under the domicile test it can stated that Jack did not returned to his original place of living and lived in Australia for the rest of the income year. Jack will be considered as a resident of Australia.

1. The 183 days test represented that if an individual present in Australia lived for more than half of the income year during his stay either constantly or with break will be regarded as an Australian occupant (Miller and Oats 2016).
2. Jack lived in Australia from the period ranging from 2007 to 2015 in income year and returned back in 2016 to live for the rest of the income year (Sharkey 2015). It is understood that he lived for a period of approximately eight and a half years and shall be considered as an Australian resident.
3. According to the taxation rulings TR 98/17 the residential status of an individual outlines the circumstances under which an individual will be considered as a resident in Australia (Jones and Rhoades 2013). Jack was a migrant holding a German passport and has satisfactorily satisfied the criteria of 183 days test.
4. Jack was absent for the period of nine months from July 8 in 2015 till the end of income year of 2016. Hence, during that period he will not be considered as an Australian resident for taxation purpose.
5. Jack upon returning from China following the end of his employed commitment decided to form a partnership with his wife and his situation are relevant to all the facts and circumstances that are relevant to his intention and purpose of presence.    

Jack is actually present in Australia for more than half of the income year and he will considered as an Australian resident. However it is understood that though the usual place of abode is outside Australia but it can assumed that Jack is an Australian resident under “IT rulings of 2650” (Chan 2013). As stated under “Fisher J (79 ATC at 4317; 9 ATR at 910-911” and connotes that Jack despite having his permanent place of abode outside Australia will be considered as an Australian resident since he satisfactorily satisfies the 183 days test. The below stated table summarised the Residential Status of Jack:

b. To determine the taxable situation of an individual one should work out their residency for the purpose of tax. According to “ITAA 1997”, an Australian can be assessed for taxation purpose without being an Australian resident (Razin and Sadka 2014.). From the above stated test it is can be assumed that Jack earned $90,000 from his employment with Ocean Development in China. According to “income tax assessment act 1997 under section 6-5” it is stated that an individual will be regarded as an Australian resident for income tax purpose. Jack will be assessed for the amount derived from his employment in china for the salary that was paid by the Australian company (Kendall and Baum 2016). The income derived by Jack from within or outside the territories of Australia will be considered for assessment. In addition to this, Jack also formed a partnership with his wife and it is assumed that the income derived by the business investment will be taken into the consideration for assessment.

The sources of income received by Jack while working in china are as follows;

1. Salary derived by Jack from his employment in china
2. Listed shares
3. An investment made in residential unit in Randwick will be regarded as Jack source of income
4. Jack has his bank account and it is assumed that interest derived from bank will be considered as his source of income

2. An occupant of Australia is taxed for their world wide income. Eliza is under obligation to declare the income derived by her from her investment made in the shares of Global AIH. As depicted in the case study, during an income year Eliza borrowed 100,000 so that she can fund 50,000 for the purchase of shares in Global AIH. Eliza being a non-resident of Australia her tax will be generally withheld for derived from her “unfranked dividends” (Sharkey 2016). Even though not being an occupant of Australian Eliza is required to pay for the income year ending 2015. The tax consequences of Eliza are stated below;

1. Dividends that is paid to the foreign occupant not being a Australian resident then the un-franked constituent of that dividend payment is subjected to tax withholding of 30% for non-treaty nations (Alstadsæter Jacob and Michaely 2015).
2. Eliza made an investment in Global AIH and derived dividends of $2,500 from such investment in Singapore. Therefore, according to the ITAA 1997 a tax withholding rate of 30% will be charged from the franking credits of Eliza’s dividend (Amiram and Frank 2015).
3. For an Australian resident working in overseas is under obligation to declare their income derived from the foreign employment. Eliza earned rental income from her overseas properties, which is subjected to be included at the time of computing the taxable income.

References 

Alstadsæter, A., Jacob, M. and Michaely, R., 2015. Do dividend taxes affect corporate investment?. Journal of Public Economics.

Amiram, D. and Frank, M.M., 2015. Foreign portfolio investment and shareholder dividend taxes. The Accounting Review, 91(3), pp.717-740.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Chan, L.K., 2013. AAT.: Principles of Taxation. Paper 5. Pearson Education Asia Limited.

Jones, S. and Rhoades-Catanach, S., 2013. Principles of Taxation for Business and Investment Planning, 2014 edition. McGraw-Hill Higher Education.

Kendall, E. and Baum, S., 2016. The residential context of health in Australia: no longer the lucky country?.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

Razin, A. and Sadka, E., 2014. Principles of International Taxation. In Migration States and Welfare States: Why Is America Different from Europe? (pp. 32-35). Palgrave Macmillan US.

Sadiq, K., Coleman, C., Hanegbi, R., Hart, G., Jogarajan, S., Krever, R., McLaren, J., Obst, W. and Ting, A., 2013. Principles of taxation law 2012. Thomson Reuters. 

Sharkey, N., 2015. Coming to Australia: Cross border and Australian income tax complexities with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part 1. Brief, 42(10), p.10.

Sharkey, N., 2016. Departing Australia: a complex tax situation with possible benefits and hidden traps. Tax Specialist, 19(5), p.180.

Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.

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